DSM Said to Seek Final Bids for Entire Caprolactam Unit

Sept. 26 (Bloomberg) -- Royal DSM NV is in advanced talks
to sell its business making caprolactam, used in plastics and
car parts, and may announce a deal before year-end, according to
two people with knowledge of the matter.

The bidding process is in the second round, with buyout
firms and corporate rivals preparing detailed offers, said the
people, who asked not to be identified because the talks are
private. The asset may fetch more than 200 million euros ($270
million), the people said.

Chief Executive Officer Feike Sijbesma is trying to refocus
away from bulk chemicals such as caprolactam, which it has
produced for more than 60 years, toward more profitable food
ingredients and high-performance materials. While caprolactam is
an important feedstock for DSM’s polyamide resins and materials,
competition from low-cost Chinese manufacturers has increased
supplies and damped prices.

DSM is reviewing options for just the merchant side of the
caprolactam business, which accounts for two-thirds of its
output, Chief Financial Officer Rolf-Dieter Schwalb told
investors and analysts at a meeting today. “You can only say
something, when something is done,” he said.

Valence Group is advising on the potential sale, according
to the people.

Profit Outlook

DSM, which has spent $3.2 billion on nutrition-ingredient
acquisitions, said today that profit this year may fall short of
an initial target, weighed down by stagnant markets in Europe,
lower pricing for chemicals, exchange-rate moves and Dutch tax
legislation.

Earnings before interest, taxes, depreciation and
amortization may be “slightly below” 1.35 billion euros, the
Heerlen, Netherlands-based company said. After originally
setting a target of 1.4 billion euros, DSM reiterated it would
be “moving towards” that level of profit.

DSM shares closed 5.4 percent lower at 55.13 euros in
Amsterdam. The company has gained 20 percent this year for a
market value of 10 billion euros.

Caprolactam accounted for the bulk of DSM’s 1.6 billion
euros in sales last year at its polymer intermediates business,
which employs about 1,500 workers. Revenue declined 16 percent
last year on lower volumes and prices, with profit at the
division slumping about 68 percent as it struggled to pass on
higher benzene prices to customers. In the U.S., carpet maker
Shaw Industries “virtually” owns part of one plant, Schwalb
said.

Caprolactam, also produced by Germany’s BASF SE, is used in
a broad range of products from plastics and films to tire cords.
DSM is currently putting the final touches on a $300 million
plant in a partnership with China Petroleum & Chemical Corp.,
known as Sinopec. The factory will be the world’s largest.